August 31, 2012 3:34 pm

Lego – beyond bricks

Toymaker builds on solid foundations with first-half earnings up by one third

Build your own (or get your children to do it for you) and you will prosper. That may be the secret of Scandinavian business success. Alongside Sweden’s Ikea, Denmark’s Lego makes tons of money by exploiting the universal obsession with assembling things. Earnings at the family-owned company in the first six months of 2012 were one third higher than a year ago. Sales were $1.5bn, or the equivalent of 12bn Lego bricks – six for every child on the planet.

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That was good work in an environment where competitors such as Mattel and Hasbro, known for Barbie and Transformers, are finding the going tough. Lego is not messing about. Its first-half performance was helped by tapping into the hearts and minds of little girls, generally underserved by toymakers – Hasbro, for example, sells four times as many boys’ toys as girls’ ones. Lego sold twice as many sets as expected of Lego “Friends” – a gaggle of girls dressed in pink and purple who go riding and shopping. To appease consumer groups that complain about gender stereotypes, the girls are good at map-reading and want to grow up to be engineers. Lego is building plastic bridges in Asia (sales there were up more than a quarter) and it is constantly innovating (60 per cent of its products each year are new launches).

It also boasts metrics that Mattel and Hasbro can only dream about in an imaginary playland. Sales of Lego have grown by an average one quarter per annum over the past five years, compared with 1 per cent at Mattel and 3 per cent at Hasbro. Lego’s operating margins are consistently 30 per cent, double those of its larger peers. But Lego has competition. The patent on its bricks ran out some years ago and it is now up against Mega Brands’ blocks, particularly in North America. In the past six months, however, those sales came at a loss of $7m for the Canadian toy group. Lego has not hit a brick wall yet.

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